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Monday, May 28, 2001

Sea change in Japan's values

Globalization, IT age prompt social diversification


Special to The Japan Times

Japan is in the midst of change in its social value system.

Ordinary people and business executives, successfully overcoming the two oil crises in the 1970s and expanding the nation's economic presence overseas in the 1980s, once held strong confidence in Japanese-style corporate management, a traditional social culture and government-private sector relations.

Expressions of admiration for the Japanese economic performance, such as the 1979 book "Japan as Number One: Lessons for America" by Ezra F. Vogel, intensified a sense of self-conceit among Japanese people. I often heard business executives saying at the time they no longer had anything to learn from American and European business operations.

Further, the asset-inflated bubble economy, which took place around 1990 stimulated by an excessive money supply, heightened the arrogance. It induced people to rush into mammonism, deteriorated business ethics, weakened self-discipline and discouraged enthusiasm for technological innovation.

After the burst of the bubble, triggered by the tight money policy adopted in 1991 to depress the asset inflation, Japan entered into a long recession. Although land and stock prices dropped relatively quickly, the government and the Bank of Japan failed to change policy toward stimulating growth, and consequently cooled excessively the economy.

Post-bubble changes

Looking at the strong recovery of the U.S. economy during the late 1980s and 1990s, which was led by market-deregulation policies and the information-technology revolution, the Japanese recognized that the recession and weakened competitiveness here were the result of mismanaged economic policy.

In the process of declining prices of lands and stocks, value of the assets shrank by about 1,000 trillion yen. Financial institutions began to suffer from the so-called "balance sheet recession" and increasing nonperforming loans, which brought about the credit crunch that is depressing business activity.

Although there were strong calls for deregulation policy from the business community to accelerate structural reform, the scope and speed of deregulation were small and slow. Lack of confidence in the future made it difficult to climb out of the recession.

Until the 1980s, policymaking was mostly dependent on bureaucrats, but due to their failure with the asset inflation and subsequent recession, and various corruption scandals involving government officials, the initiative fell to politicians and the political parties.

Much to our regret, however, the politicians and parties hadn't sufficiently cultivated their capacity to formulate optimal policies and failed to restore public confidence in Japanese policymaking.

Faced with globalized mega-competition, the business community shifted strategy from reactive restructuring -- as seen in workforce cuts, closures of excessive production facilities and disposal of excessive debts -- to the proactive restructuring currently seen.

They took more vigorously mergers and acquisitions, business and technological alliances, outsourcing, and improvement of corporate governance.

Reflecting these changes, business people and executives have gradually come to realize that the traditional social value system which supported the high economic growth until the 1980s was incompatible with the trend of globalization and the IT revolution.

Our Dentsu Institute for Human Studies has undertaken comparison surveys of global values since 1996. We recently compiled a report on the fifth survey, undertaken last October and November, targeting Tokyo and other major cities in Asia: Beijing, Seoul, Bangkok, Singapore and Bombay.

Reviewing the achievements contained in the latest survey and analyzing changes in values since the first survey, I conclude that Japanese people are still lacking confidence in the future and searching for a new value system so they can cope with the strong tide of globalization in political, economic and social arenas, catch up with the top level of information technologies, and heighten creative capability.

Fearing the future

The first characteristic illustrated in the latest survey is that Japanese are still extremely pessimistic about the future. The percentage of respondents who thought their country would be better in 10 years was only 31.4 percent, the lowest of the surveyed countries, while the figures were 70 percent to 80 percent in Asian countries and 40 percent to 60 percent in advanced countries.

Going into detail, far more people said morals and ethics, the environment, employment and working conditions, public security, education, international political power, the social system, competitive edge in economic power, and national defense were "getting worse" than "getting better." Only the welfare level, culture and art, and the level of science and technology were considered getting better.

Asked for areas in which one's country excels, the most positive response was found for social security, at 57 percent in 2000, although it decreased from 70.1 percent in 1997. Culture and arts, history and tradition, nature and scenery, and science and technology remained at the same level as the last four years.

Surprisingly, those who chose education as an area in which Japan excels compared to other countries fell from 50.7 percent in 1997 to 34.8 percent in 2000 and the rate for economic power dropped from 29.7 percent to 19.6 percent. For international leadership and international political power, those who think Japan excels was less than 1 percent.

Confidence at stake fading

The second characteristics which I would like to draw was that trust and confidence at stake were fading in Japan.

Trust in political parties and politicians kept plummeting. The year 2000 saw a general election, reframing of political parties, change of prime minister and economic slowdown. Reflecting the turmoil, trust in political parties and politicians declined from 5.4 percent in 1999 to a very low 3.5 percent in 2000, although 37.1 percent of respondents thought politics would be of future importance. Generally speaking, in most advanced countries, political confidence is not high due to diversification of social values, but in Japan political parties and politicians drew an extremely low evaluation, the worst among the countries surveyed.

Opinions about administrative organizations also fell. Reliability of administrative organizations remained low, declining slightly from 22.0 percent in 1999 to 21.7 percent in 2000. The administration has undertaken reform by promoting deregulation and downsizing government, but survey respondents were still dissatisfied. In particular, transparency and flexibility of the administration were given poor marks, at 9.4 percent and 7.4 percent respectively.

Evaluation of the financial sector, which suffered from accumulated bad loans, remained very low, receiving a positive evaluation from 20.3 percent. "Transparency" drew an extremely low assessment, and the evaluation of internationality decreased considerably. They were the lowest of any countries surveyed.

The manufacturing sector is generally considered competitive and reliable. However, the series of safety violations by some food and automobile manufacturers that sparked strong criticism from consumers and users dragged down their reliability from 68.6 percent in 1999 to 54.6 percent in 2000, although it stood higher than the politics, administration and financial sectors.

I would like to conclude that those criticism would stimulate the political and administrative reform and change in corporate governance.

New face of management

The third characteristic is that a substantial decline can be seen in the evaluation of Japanese-style corporate management. Among features unique to Japanese corporations, the evaluation for the retirement allowance system decreased 65.8 percent to 54.6 percent, the bonus system fell from 64.1 percent in 1999 to 54 percent in 2000 and thorough quality control dropped from 59.5 percent in 1999 to 50.5 percent in 2000.

Further, evaluation was extremely low for such features as family atmosphere in the company, wage negotiations in the Spring offensive, loyalty to the company, labor management cooperation, the seniority system and "keiretsu (company grouping) transactions." I would say that many people have come to believe Japanese-style corporate management is becoming out-dated.

Desiring independence

The fourth characteristic is that a sense of independence is gradually growing in Japanese society. Reviewing the research on preference for "egalitarian society" or "free-competition society," those who chose the latter increased to 52.8 percent in 2000 from 48.6 percent in 1999, similar to the U.S. and Europe. Asked to select between a society of "extensive care, higher cost" and "minimum care, minimum cost," 36.7 percent of respondents supported the former, but it has declined each year since 1998, being lower than in the U.S. at 43.6 percent and Europe at 50 percent or more in the 1999 survey. Asked for the preference between a regulated society where safety and stability are seconded through appropriate regulation, and a deregulated society where each person is responsible for his or her own action, the former was still supported by 37.8 percent, but it has declined constantly since 1998.

Japanese tended to work in large and established companies during the high economic growth period. But recently, a clear change is emerging, perhaps accepting the reality of growing competition among companies and thus seeking a way toward independence. According to the latest survey, those who sought to work in large, famous companies declined from 37.6 percent in 1998 to 25.5 percent in 2000.

Japanese people have been entertainment and leisure oriented. Those who wanted to spend money on "hobbies, interests, entertainment, leisure activities" exceeded the level found in the U.S. and Europe, but the rate fell from the 74 percent in 1999 to 69 percent in 2000. In addition, those who chose housing, furniture, clothing and fashion as goods for spending fell consecutively since 1998.

On the other hand, those who choose to spend money on human relations (with friends and families) and maintaining health, acquiring certifications and gaining knowledge recorded the highest level in five years.

These figures seem to reflect efforts to cut the cost for living in the face of the prolonged recession and uncertainty for the future, and to promote self-discipline and self-enhancement for the future in an increasingly competitive society.

Views on corporations

The fifth characteristic is that views on corporations are clearly changing. One of the features of Japanese society in the postwar period was the dominance of enterprise in daily life and social activity. However, the latest survey revealed that the percentage of Japanese who chose "workplace" as an important group to belong to declined to 37 percent in 2000, the third straight year of decline and much lower than the rate of 50 percent to 60 percent in Asian countries and 40 percent to 50 percent in advanced countries.

A good salary has become less important in the workplace, and the opportunity to demonstrate one's abilities has come to be highly desirable. The latest survey showed that the support rate for a good salary decreased to 64.4 percent and demonstration of ability increased to 62.6 percent.

However, there are mixed feelings over the wage system. When we asked about the preference for a merit-based wage system, the affirmative-response rate was below 49.8 percent, compared with nearly 70 percent of Asian people, similar to the U.S. and Europe. Job switching is still unpopular in Japan. The percentage of Japanese that "prefer to move to a company that offers better conditions" declined from 42.3 percent in 1999 to 36.6 percent in 2000, the lowest score among the countries surveyed. When looking into the results by generation, younger people were more prepared to move.

These results indicate there are still conservative expectations for working conditions, what with concern over future uncertainty, although people understand their own capability will be the key. However, the results indicating that the younger generation prefers a merit-based system to the seniority system and readily accepts job switching show that views on corporations among Japanese people will eventually converge with those of people in other countries.

Recently, Japanese executives putting the priority on profitability of corporations have come to undertake corporate restructuring. However, I am afraid the interests of shareholders are not considered important stakeholders for corporations. According to our survey, the order of stakeholders by importance was consumers, employees, local community, suppliers and clients, employees, family, and shareholders. This suggests many Japanese still think a corporation exists for consumers and its employees rather than shareholders.

Weak adaptation to IT

The sixth characteristics is that Japanese lack sufficient confidence in adapting themselves to the IT revolution. The rate of respondents feeling confident about adapting themselves to the progress of information technology was only 10.1 percent, compared with 31.3 percent in China, 48.9 percent in Singapore and 55.4 percent in India. Taking into consideration that Japan is now catching up in the level of information technology and that the younger generation is as confident as in all other countries, Japanese people will eventually build up confidence in the field.

Role in Asian economy

Finally, I want to illustrate that common recognition is emerging that Japan should contribute to the development and stability of the Asian economy and improvement of the global environment. When asked about the role of Japan in the world, those who chose development and stabilization of the Asian economy as the main role was 69.3 percent and improvement of the global environment was 68.2 percent, followed by 43.7 percent for development and stabilization of the world economy. Also, in Asian countries, 60 percent to 80 percent of respondents said Japan's main role should be economic development and stabilization.

New social value system

The trend of globalization and the spread of the IT revolution are the worldwide tide in the opening of the 21st century. Japanese people are coming to realize the necessity of accommodating themselves to these trends and struggling to change their social value system. I believe Japanese society has historically cultivated basic values like tolerance for other cultures, harmony with social organizations and self-discipline. If Japan will vigorously reform its political, economic and administrative system, develop innovative corporate governance, and strengthen the educational capacity, I am confident Japan will successfully forge a new social value system that can lead to a dynamic, creative and intelligent society.

Shinji Fukukawa is president and CEO of Dentsu Institute of Human Studies.


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